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Costco CEO

Claim:   Image presents information about Costco CEO James Sinegal.

PARTLY TRUE

Example:   [Collected via e-mail, November 2012]

Is this true?

Costco CEO pays his employees $17 hour plus benefits and resists Wall Street demands to cut pay and benefits.

 

Origins:   This graphic featuring a photograph and information about Costco warehouse store chain CEO James Sinegal was circulated in November 2012 and was generally accurate, but a bit outdated. Jim Sinegal co-founded Costco and served as the company's President and CEO for nearly three decades, but he stepped down from those positions in January 2012 (although he remains a company advisor and a member of the Costco board of directors). The accompanying text about employee pay and benefits and Sinegal's resistance to Wall Street criticisms appears to have been drawn from a July 2005 New York Times profile of Sinegal and Costco:
Combining high quality with stunningly low prices, [Costco products] appeal to upscale customers — and epitomize why some retail analysts say Mr. Sinegal just might be America's shrewdest merchant since Sam Walton.

But not everyone is happy with Costco's business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco's customers but to its workers as well.

Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other
retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."

Mr. Sinegal begs to differ. He rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street's profit demands.

Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. "This is not altruistic," he said. "This is good business."

He also dismisses calls to increase Costco's product markups. Mr. Sinegal, who has been in the retailing business for more than a half-century, said that heeding Wall Street's advice to raise some prices would bring Costco's downfall.

Despite Costco's impressive record, Mr. Sinegal's salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among all American companies.
Similarly, Slate wrote in 2008 that:
It's not hard to make a case that Costco pays employees more. The most relevant comparison is between Costco and Sam's Club, Wal-Mart's membership warehouse, since both business models rely on membership fees for a large percentage of revenues. A Sam's Club employee starts at $10 and makes $12.50 after four and a half years. A new Costco employee, at $11 an hour, doesn't start out much better, but after four and a half years she makes $19.50 an hour. In addition to this, she receives something called an "extra check" — a bonus of more than $2,000 every six months. A cashier at Costco, after five years, makes about $40,000 a year. Health benefits are among the best in the industry, with workers paying only about 12 percent of their premiums out-of-pocket while Wal-Mart workers pay more than 40 percent.

In my interview with Costco CFO Richard Galanti, he mentioned Jim Sinegal every couple of minutes, attributing the company's high wages to the CEO's personal values. CFO Galanti acknowledged having at times argued with his boss, urging him to curb Costco's generosity on health care. (Sinegal eventually agreed with him, reluctantly, in 2003 but insisted that care remain affordable to employees.)

Sinegal's kindliness is impressive, but he's also 72 years old and thus won't be around forever. Perhaps he's created a corporate culture strong enough to outlast him, but that's impossible to predict.
In a November 2010 report of data gathered by the job site CareerBliss.com, Costco employees gave the company "the highest ratings for salary, benefits and work-life balance."

According to Yahoo! Finance, in 2011 Jim Sinegal's total yearly compensation as a Costco company executive, including salary and bonuses, was $629,000, and he garnered another $12,300,000 through the exercise of stock options.

Last updated:   28 November 2012

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Sources:

    Allison, Melissa.   "Costco's Colorful CEO, Co-Founder Jim Sinegal to Retire."
    The Seattle Times.   31 August 2011.

    Featherstone, Liza.   "Wage Against the Machine."
    Slate.   27 June 2008.

    Goldwert, Lindsay.   "Costco Employees Give company Top Ratings ."
    New York [Daily News].   29 November 2010.

    Greenhouse, Steven.   "How Costco Became the Anti-Wal-Mart."
    The New York Times.   17 July 2005.

    Schmit, Julie.   "Costco Wins Loyalty with Bulky Bargains."
    USA Today.   23 September 2004.